Getting your tax affairs in order before 5 April
This time of year is your last chance to get your tax affairs in order before the end of the 2018/19 tax year. We’ve provided a summary of some key tax and financial planning areas which may be appropriate to certain taxpayers and should be considered prior to the end of the tax year on Friday 5 April 2019.
Tax planning might not sound very exciting, but it can have a dramatic effect on your personal finances. The UK tax system offers many different tax reliefs and allowances for individuals. Reviewing your tax affairs to ensure that available reliefs and exemptions have been utilised, together with future planning, can help to reduce a potential tax bill.
Identifying any tax planning opportunities
Personal circumstances differ, so if you have any questions or if there is a particular area you are interested in, please do not hesitate to contact us. It is important to ensure that, if you have not done so already, you take the time to carry out a review of your tax and financial affairs to identify any tax planning opportunities and take action before it’s too late.
Tips to help you get ahead on managing your tax affairs
Income Tax – if your income is nearing the different tax thresholds, you could reduce your tax liabilities by reducing your taxable income. There are a variety of ways this can be achieved, from changing income into non-taxable forms, making pension contributions, making tax-incentivised investments and making donations to charity.
Transfer income-producing assets – consider transferring income-producing assets to your spouse or registered civil partner in order to use the Income Tax personal allowance and possibly lower Income Tax bands of the transferee. In order to be effective for tax purposes, the transfer must be a genuine and unconditional gift to your spouse.
Individual Savings Accounts (ISAs) – fully utilise your tax-efficient ISA allowance. The allowance for 2018/19 is £20,000 per person, whilst the Junior ISA (JISA) allowance is now £4,260 for children under 18, as is the Child Trust Fund (CTF) allowance for those with a CTF instead of a JISA – for any child with a CTF, the CTF must be closed and transferred to a JISA before contributions can me made to a JISA.
Capital gains – use the capital gains annual exemption of £11,700 (2018/19) to realise gains tax-free. The allowance cannot be transferred between spouses or carried forward, although assets can be transferred between spouses in order to utilise more than one annual exemption (as long as the transfer is a genuine unconditional gift).
Pension contributions – maximise contributions amount and tax relief. Take full advantage of increasing pension contributions by utilising the annual allowance, which is £40,000 (tapered if you have income, including employer pension contributions, over £150,000) less any contributions made by your employer or the value of your whole earnings – whichever is lower. Unused annual allowances may also be carried forward from the previous three tax years, if eligible.
Pension contributions for spouses and children – consider contributing up to £2,880 towards a pension for your non-earning spouse or children. The Government will add £720 on top – for free. You could contribute more if your spouse (or child) earns more than £3,600 per annum (up to 100% of their earnings, less any contributions they make personally).
Remuneration strategy – if you run your own company, it’s a good idea to determine your pay and benefits strategy sooner rather than later. For 2018/19, the dividend nil-rate band is reduced from £5,000 to only £2,000 – it’s really important to consider the tax implications of your chosen approach to salary, benefits, pensions and dividends.
Gifting – you can act at any time to help reduce a potential Inheritance Tax (IHT) bill when you’re no longer around. Make use of the IHT annual exemption that allows you to give away £3,000 worth of gifts and for them to be immediately outside of your estate. If unused, the exemption can be carried forward one year if the current year’s allowance is also fully used.
Overpayment and capital loss claims – submit claims for overpaid tax and capital loss claims for the 2014/15 year before 5 April 2019, after which such claims will be time-barred.
Landlords – for 2018/19, the restriction on deductibility of mortgage interest and other finance costs doubles from 25% to 50%. For 2019/20, the restriction will apply to 75%, and then from April 2020, 100% of finance costs incurred by individual landlords.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.
ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.